De Beers CEO seeks slimmer, more flexible company

Tova Cohen, Ari Rabinovitch

4 Min Read

TEL AVIV (Reuters) - Diamond producer De Beers plans to cut costs and use machines more in place of labor as it strives to become leaner and more flexible in response to a tougher world economic environment, the company’s chief executive said.

Philippe Mellier, CEO of global diamond merchants De Beers, speaks to journalists during the Reuters Mining and Metals Summit in London March 27, 2012. REUTERS/Chris Helgren

De Beers’ owner Anglo American (AAL.L) has just changed its own management and is in the middle of a three-month review, the outcome of which will likely include steps to improve the performance of the world’s biggest diamond producer by value.

Philippe Mellier and another senior executive, Varda Shine, told Reuters that De Beers was working on a wide range of ideas including a new automatic grading machine, which would “get rid of the human element” in grading diamonds.

It also hopes to introduce a screening machine by the end of the year that can detect synthetic stones among small, or melee, diamonds.

“We currently have a big project that is looking at integrating the mining companies processes and systems together with the midstream sorting operations all the way to sales,” Shine said in the interview in Tel Aviv on Wednesday.

“(We need) to make sure that we are able to become leaner and more flexible because the world is much more volatile today.”

Both executives shied away from saying whether that would add up to consolidation of some of the company’s businesses or worker layoffs, but they did note that De Beers has four separate units and said the whole process could involve some capital outlays.

Mellier also said he could not comment on the ongoing review by Anglo.

Prices of diamonds slumped after the 2008 financial crash and have still to fully recover, hurting the margins of De Beers and its main competitor, Russia’s Alrosa (ALRS.MM).

Some players have speculated the market may gain from investors in markets like China using dollar-denominated assets as a safe haven while the Federal Reserve reduces the flood of cheap dollars flowing into the world economy.

A more durable recovery of the U.S. economy may also help the jewelry market, but against that are signs of a slowdown in demand and economic stimulus in China, a key growth market for diamonds in recent years.

Mellier said on balance he believed global demand for diamond jewelry would rise a touch faster this year than last, outpacing supplies of the precious stones and clearing the way for more investment in the company’s operations.

Production for De Beers in 2013, however, would stay in line with last year’s rate of 27.9 million carats, he said.

“We think that the jewelry diamond market is going to grow a little bit more than last year,” Mellier said.

PRICE SLUMP

Consumer demand for diamond jewelry rose 3 percent in 2012 but De Beers’ total sales fell 16 percent to $6.1 billion in 2012 while core earnings dropped 39 percent to $1.08 billion. The company has forecast a single-digit increase in rough diamond prices this year, after a 12 percent fall in 2012.

“We actually see the supply-demand picture as being very positive, which is why we are so confident to continue investing,” Shine said.

To help out clients known as sightholders, De Beers last year offered purchase deferrals until March 2013, but Mellier said it was a “one-shot” move that would not be extended.

Mellier also said two of its leading mines, Venetia in South Africa and Jwaneng in Botswana, had recovered respectively from a major flood and a slope failure.

“The two biggest events which were impacting production (at the) beginning of this year have now been cleared.”

Additional reporting by David Brough and Clara Ferreira-Marques; in London; editing by Patrick Graham